Registered advisers should take note that on June 17th, the SEC adjusted the dollar amount thresholds for clients of registered advisers to be deemed to be “qualified clients” under rule 205-3 of the Investment Advisers Act of 1940, which permits registered investment advisers to charge performance-based fees to such clients.
Proskauer Launches Private Equity SEC Enforcement Tracker
Today, we are launching a proprietary database tracking all SEC enforcement actions involving private equity advisers. The tracker contains key information from the actions, including summaries of key issues, settlement terms, and relevant statutory provisions. The tracker will be an important resource for us and our clients, providing us with
Proskauer Private Investment Funds Group Releases 2018 Annual Review and Outlook
Proskauer’s Private Investment Funds Group today released its 2018 Annual Review and Outlook for Hedge Funds, Private Equity Funds and Other Private Funds. This yearly publication provides a summary of some of the significant changes and developments that occurred in the past year in the private equity and hedge
SEC Staff Issues Risk Alert on the Six Most Frequent Fee and Expense Compliance Issues
On April 12, 2018, the SEC’s Office of Compliance Inspections and Examinations issued a risk alert listing the most common compliance issues concerning fees and expenses charged by SEC-registered investment advisers. Advisers should review their practices, policies and procedures to ensure compliance with their advisory agreements and representations to clients
Proskauer Private Investment Funds Group Releases Annual Review and Outlook
Proskauer’s Private Investment Funds Group recently released its 2017 Annual Review and Outlook for Hedge Funds, Private Equity Funds and Other Private Funds. This yearly publication provides a summary of some of the significant changes and developments that occurred in the past year in the private equity and hedge
Reported Criminal Probes Regarding Bond Valuations Highlight the Importance of Valuation Procedures
According to recent news reports, the DOJ and the SEC are investigating the possible improper use of third-party broker quotes by hedge fund managers to value illiquid debt securities in their portfolios. Prosecutors are reportedly focused on possible instances where fund managers allegedly solicited predetermined or improper quotes from brokers, and used those estimates to inflate their own valuations of thinly-traded mortgage bonds.
In addition, the co-head of the SEC’s Asset Management Unit recently highlighted that unit’s focus on valuation, particularly where registered advisers failed to follow their own internal procedures when valuing illiquid positions. The SEC’s focus is further demonstrated by a recent action against a fund manager for improperly valuing municipal bonds inconsistently with GAAP.
SEC Adopts Higher Net Worth Threshold for Qualified Clients under the Advisers Act
In an order dated June 14, 2016, the Securities and Exchange Commission (SEC) adopted its prior proposal to increase the net worth threshold for “qualified clients” under Rule 205-3 of the Investment Advisers Act of 1940 (the Advisers Act) from $2 million to $2.1 million. This adjustment is being made pursuant to a five-year indexing adjustment required by §205(e) of the Advisers Act.
Application of the Joint Proposed Incentive Compensation Rule to Investment Advisers
On May 16, 2016, six federal agencies issued a joint release inviting public comment on a proposed rule to prohibit or condition certain incentive-based compensation arrangements. This proposed rule was mandated by section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and is a revision of the proposed rule the agencies previously published in the Federal Register on April 14, 2011.
As one of the six agencies, the U.S. Securities and Exchange Commission (SEC), is seeking to apply the rule to covered institutions with average total consolidated assets greater than or equal to $1 billion that offer incentive-based compensation to covered persons. By its terms, the definition of “covered financial institution” in section 956 of Dodd-Frank includes any institution that meets the definition of “investment adviser” under the Investment Advisers Act of 1940, as amended (the Advisers Act), regardless of whether the institution is registered, or exempted or prohibited from registration, as an investment adviser under the Advisers Act.
SEC Proposes Higher Net Worth Threshold for Qualified Clients under the Advisers Act
On Wednesday, May 18, 2016, the U.S. Securities and Exchange Commission (SEC) proposed to increase the net worth threshold for qualified clients from $2 million to $2.1 million. This proposed adjustment is being made pursuant to a five-year indexing adjustment required by §205(e) of the Investment Advisers Act of 1940 (the Advisers Act), as amended by §418 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Investment advisers registered with the SEC are prohibited by §205(a)(1) of the Advisers Act from entering into, extending, or renewing any advisory contract which provides for compensation to the investment adviser on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client (e.g. a performance-based fee like carried interest). An exemption from this prohibition is provided by Rule 205-3 under the Advisers Act for clients that meet the definition of a qualified client found in the rule.